Partnership Solicitor Eimear McCartan gives a real insight into the differences and benefits of both LLPs and Limited Companies.
Whilst I would consider myself a fan of the LLP as means of running your business, the limited company might be a more suitable vehicle in certain circumstances. Following on from my previous blog on converting to a limited company, the following are some advantages in using the limited company as a business vehicle:
- The limited company allows for a more sophisticated structure of equity in comparison to the LLP, enabling the creation of a host of different classes of shareholders, with different voting rights and financial entitlements.
- Limited companies can be a tax saving mechanism if your working capital tends to be retained in the business instead of regularly withdrawn.
- It is possible to retain equity in the limited company after retirement, whilst not having to be involved in management of the business.
- Linked to this, limited companies are more suitable if you want to inject sleeping investment in the business, due to the distinction between ownership (shareholding) and management (director).
- The limited company is not subject to the claw back provisions which apply to LLPs. These provisions allow a liquidator to require a member to put back into the LLP money they withdrew in the period 2 years preceding the insolvency of the LLP, if the member knew or had reasonable grounds for believing the LLP was unable to pay its debts or would so become unable to pay its debts by the withdrawal. Therefore, limited liability for LLP members can in some situations be swept away.
- Banks are used to limited companies as a means of running a business and therefore are more open to them than LLPs (although this situation is slowly changing).
These are just a few matters to consider when reviewing the limited company as a business vehicle. What the limited company doesnt have is the level of flexibility of an LLP, in that it is subject to more stringent regulation than LLPs. In addition, the limited company’s affairs are more public than the LLP, which may prove to be a disadvantage for some.
The answer to who comes out on top is not, therefore, a simple one and will depend upon your business needs. If you want to know the implications of both vehicles for you, speak to your legal and tax advisers, to ensure you choose the best fit for your business.